The dollar index increased alongside rising oil prices, as an agreement between Iran and Oman remains elusive.

Japan's currency surrendered half of the gains triggered by recent intervention, making it the worst performer among G-10 currencies on Monday. The Bloomberg Dollar Spot Index rose 0.2%, while Treasury yields also climbed. Traders are now focusing on the upcoming U.S. July inflation report, set to be released on Wednesday. Market expectations currently place the probability of a Federal Reserve rate hike in September at around 50%.

Analysts from Citigroup, including Daniel Tobon, Brian Levine, and Osamu Takashima, noted that "although our dollar outlook has become more neutral, we believe the risk remains tilted toward a stronger dollar ahead of the data release, as the market prices in a potentially more hawkish Fed stance." They added, "We expect this pattern to persist until the U.S. CPI report is published."

The USD/JPY pair rose as much as 0.9% to 159.19. Jane Foley, head of FX strategy at Rabobank, commented, "The market has begun to lose confidence in the sustainability of the dollar-yen downtrend."

According to Maximillian Lin, a strategist at Canadian Imperial Bank of Commerce, "the USD/JPY pair remains influenced by external factors like rising oil prices. The fundamental issue of persistently low Japanese government bond yields has not been resolved. Therefore, we still expect USD/JPY to break back above 160 in August." A summary of the Bank of Japan's July meeting minutes indicated that inflation upside risks are increasing, with one member suggesting that the pace of rate hikes could accelerate.

The AUD/USD pair fell 0.1% to 0.7058. The Reserve Bank of Australia is expected to hold its interest rate steady for a second consecutive meeting on Tuesday. The EUR/USD pair declined 0.1% to 1.1543. Meanwhile, the GBP/USD pair edged up 0.1% to 1.3508.